Empire Fire & Marine Insurance v. Clarendon Insurance

PRESIDING JUSTICE MURRAY

delivered the opinion of the court:

Empire Fire & Marine Insurance Company (Empire) appeals the denial of its summary judgment motion and the grant of Clarendon Insurance Company’s¹ (Clarendon’s) cross-motion for summary judgment in a declaratory judgment action regarding insurance coverage in relation to an August 4, 1989, auto accident. The facts giving rise to this appeal are as follows.

A multi-vehicle automobile accident occurred on August 4, 1989, while defendant Florence Nicpon (Nicpon), a "car hiker” for defendont Lakeshore Auto Sales, Inc. (Lakeshore), was returning a 1987 Dodge Dakota from Lakeshore’s location in Zion, Illinois, to defendant Schaumburg Toyota, Inc. (Schaumburg), in Schaumburg. Lake-shore had intended to purchase the 1987 Dodge Dakota from Schaumburg, but allegedly rejected the vehicle due to its failure to conform to representations made by Schaumburg based upon a defective paint job. Allegedly Schaumburg agreed that Lakeshore could return the vehicle. Nicpon, a "car hiker” who had worked for Lakeshore for the past several months, was then assigned to return the Dakota to Schaumburg.

Nicpon, while leading a group of three other car hikers, allegedly crossed the median on Palatine Road resulting in a number of collisions and injuring, among others, Judith Arnold (Arnold) and Ramona Cimballo (Cimballo). Arnold and Cimballo filed lawsuits to recover for personal injury damages sustained during this accident. The Arnold suit (docket No. 90 — L—5301) claimed, in count I, that Lakeshore owned the Dodge Dakota and that Nicpon was an agent, servant or employee of Lakeshore. Alternatively, in count II, the Arnold suit claimed that Schaumburg owned the vehicle and that Nicpon was its agent, servant or employee. The Cimballo suit (docket No. 90 — L—19944) named only Nicpon and Lakeshore as defendants. Cimballo alleged that she was injured as a result of a collision with a Dodge Dakota, which was in the possession and control of Lakeshore and operated by Nicpon, who was Lakeshore’s employee.

Subsequently, Empire, Lakeshore’s insurer, tendered the entire defense of the Arnold and Cimballo lawsuits to Clarendon, Schaumburg’s insurer, claiming that Clarendon’s policy of insurance provided primary coverage for all defendants named in both suits. Clarendon rejected the tender. Empire then filed a declaratory judgment action and moved for summary judgment, claiming that, as a matter of law, Clarendon’s policy of insurance provided primary coverage for all defendants. Clarendon filed a cross-motion for summary judgment, claiming that, as a matter of law, its policy of insurance did not cover Nicpon or Lakeshore and, therefore, they had no duty to defend these parties. After a hearing on the motions, the trial court issued an order denying Empire’s motion, but granting Clarendon’s cross-motion for summary judgment, finding that the Dodge Dakota was not a "covered auto” under Clarendon’s policy of insurance. It is from this order that Empire appeals.

On appeal, Empire does not deny that Lakeshore and Nicpon tendered the defense of the law suits to it and that they are insureds under its policy of insurance. Rather, Empire contends that the Dodge Dakota being returned to Schaumburg from Lakeshore was a "covered auto” under both the Empire and Clarendon insurance policies and that, pursuant to Clarendon’s policy provisions, the Clarendon policy afforded primary coverage. In support of this position, Empire contends that Nicpon was an "insured” under Clarendon’s policy of insurance because she was working in furtherance of Schaumburg’s "garage operations” and that ownership of the Dakota and the attendant risk of loss remained with Schaumburg because Lakeshore properly rejected the vehicle as a nonconforming good. Finally, Empire argues that its tender of the defense of the underlying cases was sufficient to trigger coverage under Clarendon’s policy of insurance for Nicpon and Lakeshore.

Clarendon, on the other hand, argues that it owes no duty to defend Nicpon or Lakeshore in either underlying action because, as the trial court properly determined, the Dakota was not a "covered auto” at the time of the accident pursuant to the provisions of its policy of insurance. Clarendon’s policy provision states that a "covered auto” is one that is in the actual possession or control of the insured (Schaumburg) or its bailee. Clarendon argues that, since the allegations in the complaints charge that Nicpon was Lakeshore’s agent and that Lakeshore owned, possessed or controlled the Dakota, the allegations in the complaints take Nicpon and Lakeshore outside the parameters of Clarendon’s policy of insurance. Clarendon also denies that Nicpon was acting in furtherance of Schaumburg’s garage operations.

It is Clarendon’s position that it was proper for the trial court to interpret its policy provisions and determine that Lakeshore and Nicpon were not insureds. In so doing, Clarendon claims the trial court correctly determined that Empire’s motion for summary judgment should be denied and Clarendon’s motion should be granted.

In the alternative, however, Clarendon argues that a second basis exists for upholding the trial court’s ruling. Clarendon contends that its duty to defend Lakeshore and Nicpon was never triggered because Lakeshore and Nicpon looked only to Empire for a defense and they never tendered or authorized the tender of the defense of the underlying actions to Clarendon.

It should also be noted that two motions have been filed with this court and have been taken with the case; first, a motion by Ramona Cimballo for leave to file a brief in support of Empire, and, second, a motion by Empire for leave to file an additional brief on the issues of waiver and estoppel.

For reasons that follow, we affirm the trial court’s denial of summary judgment to Empire, but reverse the trial court’s order granting summary judgment to Clarendon. The motions before this court and taken with the case are also denied at this time.

Settled law in Illinois recognizes that an insurer owes an insured two duties, the duty to defend and the duty to indemnify. The two duties are not coextensive. An insurer’s duty to defend or, if a conflict of interest exists, to provide for a defense is determined by the allegations contained within the complaint. (Maryland Casualty Co. v. Peppers (1976), 64 Ill. 2d 187, 355 N.E.2d 24; Central Mutual Insurance Co. v. Kammerling (1991), 212 Ill. App. 3d 744, 571 N.E.2d 806.) The insurer’s obligation is triggered when the insured, or someone acting on behalf of the insured, tenders the defense of an action which alleges facts that fall within, or potentially within, the policy’s coverage. (Institute of London Underwriters v. Hartford Fire Insurance Co. (1992), 234 Ill. App. 3d 70, 599 N.E.2d 1311.) This duty exists even if the allegations in the complaint are groundless, false or fraudulent (Insurance Co. v. Protective Insurance Co. (1992), 227 Ill. App. 3d 360, 592 N.E.2d 117) and if only one of several theories of recovery alleged in the complaint potentially falls within the policy’s coverage (United States Fidelity & Guaranty Co. v. Wilkin Insulation Co. (1991), 144 Ill. 2d 64, 578 N.E.2d 926). If an insurer is in doubt as to its duty to defend, it should seek a declaratory judgment as to its rights and obligations, or defend under a reservation of rights, or both. {Insurance Co. v. Protective Insurance Co., 227 Ill. App. 3d at 365.) However, a declaratory judgment action to determine an insurer’s duty to defend will be deemed premature if, in resolving the question, one must look beyond the allegations of the complaint or if issues crucial to the underlying action would be decided, thereby precluding one or more theories of recovery. Thornton v. Paul (1978), 74 Ill. 2d 132, 384 N.E.2d 335; Maryland Casualty Co. v. Peppers, 64 Ill. 2d at 197, 355 N.E.2d at 30.

In the present case, Empire does not contest the fact that the allegations in the underlying Arnold and Cimballo actions alleged facts which brought Lakeshore and Nicpon potentially within the coverage of its policy. Thus, once Lakeshore and Nicpon tendered the defense of the actions to Empire, there is no doubt that Empire owed them the duty to defend them or, if a conflict of interest existed, to provide for their defense. Empire concedes this point but, nonetheless, sought a declaratory judgment that Clarendon, too, owed Lake-shore and Nicpon a duty to defend, and that Clarendon’s policy provided primary coverage.

Based upon the principles stated above, the first matter to be considered is whether the allegations in either complaint placed Lakeshore or Nicpon within, or potentially within, the coverage of the policy Clarendon provided Schaumburg. Looking at the Arnold complaint, it can be seen that the complaint alleges, in alternative counts, that Nicpon is the agent, servant or employee of either Lake-shore or Schaumburg. It seems clear, therefore, that the Arnold complaint alleges facts that would bring Nicpon potentially within the coverage of the policy Clarendon provided to Schaumburg. Furthermore, if Empire’s duty to defend Lakeshore and Nicpon, its alleged agent, servant or employee, was triggered by Lakeshore’s tender, Clarendon’s obligation to defend Schaumburg and its alleged agent, servant, or employee (Nicpon) would also be triggered by Schaumburg’s tender to Clarendon. We find, therefore, that Clarendon owes Nicpon a duty to defend under the Schaumburg policy equal to that of Empire’s duty under Lakeshore’s policy.

Nevertheless, Empire’s declaratory judgment action seeking a ruling that Clarendon’s policy provided primary coverage was premature and the trial court properly denied the motion. This is because the resolution of the issue of primary coverage would require the trial court to determine which of the two parties, Schaumburg or Lakeshore, owned the Dodge Dakota at the time of the accident. This issue is a hotly contested issue of fact and one of the ultimate issues upon which recovery is predicated. Thus, it would be inappropriate and an abuse of discretion for the trial court to make such a determination.

For similar reasons, we must find that the trial court abused its discretion in ruling that Clarendon owed no duty to defend or indemnify either Lakeshore or Nicpon. In so holding the trial court went beyond the allegations of the Arnold complaint and determined that, at the time of the accident, the Dodge Dakota was not in the actual possession of Schaumburg or its bailee and, thus, was not a "covered auto” within the terms of Clarendon’s policy of insurance. However, as stated above, since Nicpon was alleged to have been the agent, servant or employee of both Lakeshore and Schaumburg, the resolution of this issue would be a premature determination of one of the ultimate facts upon which recovery was predicated. Therefore, we reverse the portion of the trial court’s order granting Clarendon’s motion for summary judgment.

In light of our resolution of the issues on appeal, we find it unnecessary to address the motion by Cimballo to intervene in the appeal or the motion by Empire to file an additional brief to raise new matters. These motions, which were taken with the case, are hereby denied.

The order of the circuit court denying Empire’s motion for summary judgment is affirmed; the order granting Clarendon’s motion for summary judgment is reversed.

Affirmed in part; reversed in part.

GORDON, J., concurs.

1 Clarendon indicates in its brief that its correct name is Clarendon National Insurance Company.